Raiders from the east: The oligarchs who won their case but took a battering
Three oligarchs who sued a London oil company may have won, but their reputations suffered in the High Court
Ukrainian eyes may have been fixed on the national football stadium last night for the England clash. But in the Belgravia and Swiss homes of three rich oligarchs, a recent High Court judgment must have been occupying their minds. While the ruling was in their favour, it was hugely damning of their reputations.
The case involves London-based Gennadiy Bogolyubov and Alexander Zhukov – father of Roman Abramovich's girlfriend Dasha Zhukova – and Switzerland-based Igor Kolomoisky, who is one of Ukraine's richest men.
It revolves around their behaviour towards the London Stock Exchange listed mining firm JKX Oil and Gas.
In May, JKX's board, led by the Welshman Paul Davies, believed Mr Bogolyubov and Mr Kolomoisky were, through their investment company Eclairs, attempting to raid the company – take control without going through the costly process of launching a full takeover. Mr Kolomoisky had previously tried to seize control of London's Ferrexpo and Australia's Consolidated Minerals. In the case of JKX, they were, the board believed, acting in concert with Mr Zhukov to force out the board and seize control.
As a result, they banned the men from voting their 39 per cent block of shares at the company's AGM. It was over this ban that the oligarchs were suing JKX.
Mr Justice Mann ruled that the board was wrong to impose the voting restriction but had reasonable cause to believe there was an attempted raid in progress.Mr Kolomoisky had the reputation of being a "corporate raider", someone who attacked companies by destabilising management, driving down the share price and grabbing control "without paying what the other shareholders would regard as a proper premium for their shares".
Mr Kolomoisky had, the judge noted, a reputation of having sought to take control of a company "at gunpoint" in Ukraine. Even his main witness in the trial admitted that was his boss's image.
The judge said that JKX's board had understandably concluded that merely having Mr Kolomoisky as a shareholder had been scaring banks away from providing the company with loans. "Some banks openly expressed that view; others said it off the record; others did not express it, but the directors (with good reason) perceived that the Kolomoisky association was a bar to raising significant finance..."
Starved of funding, the chief executive Mr Davies met the tycoon in Monaco's Bay Hotel – where a luxury suite costs €3,600 a night – to ask him to provide the loans himself.
At that meeting, the judge found, Mr Kolomoisky had suggested a "clandestine" tactic. The oligarch said he would only lend the money in return for having one of his placemen installed in a powerful shadow management role at the company's Poltava Petroleum Company subsidiary – effectively exercising great influence on what is the biggest non-state-owned producer of oil and gas in Ukraine.
Mr Davies said the board and shareholders would never accept such a demand. Startlingly, Mr Kolomoisky responded that "they did not have to know".
"This clandestine approach," the judge said with understatement, "did not commend itself to the board of JKX." Mr Justice Mann did not comment on why the billionaires had opted not to testify in person. But he did condemn the fact that Mr Kolomoisky's right-hand man, Timur Novikov, had not appeared as a witness, instead sending a relative newcomer to the oligarch's business to testify instead.
This witness, Michael Bakunenko, effectively said Mr Davies's version of the Monte Carlo meeting was untrue, claiming JKX's financial plight was not even mentioned. But the judge ruled that this version of events was "inconceivable". In fact, he said, "The very opposite was the truth. I accept Dr Davies's version of events and find that Mr Bakunenko's version is a contrivance..."
So withering was Mr Justice Mann's description of the hapless Mr Bakunenko that one could almost feel sorry for him: "Mr Bakunenko would be likely to seek to give evidence which toes the Kolomoisky party line on any given issue," he concluded.
Key to the case was whether the oligarchs looked as though they were acting with each other in concert. If they were, under Stock Exchange rules they must disclose the fact. So JKX issued letters known as Section 793 notices, in which investors have to come clean about what shares they own and who else they are affiliated with. The oligarchs responded with the essential message that they were all acting independently.
JKX's board did not believe them, and the judge decreed their doubts were justifiable. Not only had the finance director Cynthia Dubin "considered she had strong grounds for doubting the honesty of Mr Kolomoisky and Mr Bogolyubov", he said, but the board had reasonable cause to consider the responses by all the oligarchs to the section 793 notices were "inaccurate".
The oligarchs had proposed replacing the British team at the top of the board with their own people. But the judge found that JKX was justifiably concerned about the proposed placemen's suitability.
One, Oleksandr Ratskevych, was, as the judge described him "a Zhukov man". As a financier, the judge said, it was not clear what skills he had to qualify him to be a director of an energy company. Another, Stanislav Yudin, had reportedly fled criminal charges in Ukraine and was living in exile in London. "There was," ruled the judge, "reasonable cause to believe that there was an arrangement between Mr Kolomoisky and Mr Zhukov which involved them voting their shares together to change the management of the company, and to block the special resolution, in exchange for Mr Ratskevych being placed on the board."
A spokesman for Mr Kolomoisky and Bogolyubov's investment firm declared they were "pleased with the overall judgment".
He said the ruling "confirms our principle point that Eclairs' vote should be counted, and that JKX was wrong to impose this restriction on us."
But, given the public airing of their battered reputations, this "victory" seems to have been Pyrrhic in the extreme. And it must have particularly delighted their rival, Victor Pinchuk, the billionaire friend of Tony Blair. For he is suing the pair in another case soon to hit the High Court over the alleged theft of a business.
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